Market Talk

Palm struggling to find its way.

So much for all the hype surrounding Palm last year.

The smart-phone maker dealt a big blow to investors today, slashing revenue guidance way below analysts’ expectations and acknowledging its devices aren’t selling as well as it expected. Shares plunged.

From WSJ:

Palm rolled out its new Pre and Pixi phones last year in an attempt to regain ground lost to Apple Inc.’s iPhone and Research In Motion Inc.’s BlackBerry. While the phones have won praise from reviewers, sales have stalled amid tough competition, heavy marketing support for more popular phones by the top two U.S. wireless carriers, and a dearth of “apps,” the third-party programs and games that have driven much of the appetite for smart phones.

The company said Thursday wireless carriers are ordering fewer of the phones than expected and are deferring orders they have made to future periods. As a result, Palm said its revenue for the fiscal year ending in May will be “well below” the $1.6 billion to $1.8 billion it had forecast. The company’s shares dropped about 15%.

“Driving broad consumer adoption of Palm products is taking longer than we anticipated,” Chief Executive Jon Rubinstein said in a release.

Palm shares plunged $1.56, or19%, to $6.53, and is now trading at levels last seen in April 2009. The stock had a huge run-up last summer amid potential that the Pre could become an iPhone killer. Looks like those expectations may’ve been a bit premature.

“The issue is that Palm is being crowded out of the smart phone market by existing powerhouses — Research In Motion (RIMM) and Apple (AAPL) — as well as resurgent players like Motorola (MOT),” Larry Dignan writes at ZDNet. “Palm is going to have to spend more money on marketing if it wants to compete in the market share game. Scale matters and…Palm’s getting crunched by Android devices.”

Palm also isn’t getting enough love from the wireless carriers who have cut back or deferred orders. Even with Verizon Wireless’ marketing support, sales have faltered. Morgan Stanley says the stock has little valutation support at its current level and could move closer to $4, while wondering if Palm has a Plan B. Firm downgrades PALM to equalweight from overweight.

But not everyone is down on the stock. MKM Partners says there’s no reason to sell shares now, since all the negative news is priced into the stock. MKM also points to AT&T (T) as another catalyst, and says Palm may be working out a deal with T-Mobile USA in the second half of 2010.

Nevertheless, Palm’s revenue warning is a positive for Research In Motion (RIMM), says GMP Securities. For a large portion of 2009, firm says many investors saw Palm as a Lazarus-like ‘RIM-killer’ due to the Pre’s launch.

Turns out that carriers like Sprint Nextel (S), Verizon Wireless, and Bell Canada are finding the Pre a hard sell, despite its good operating system and user interface.

“RIM not so easy to kill, it would seem,” firm says.

(Roger Cheng and Stuart Weinberg contributed to this post.)